By Dr. John Sullivan, Head and
Professor of Human Resource Management College of Business, San
Francisco State University

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The advantages and disadvantages
of "External First" hiring preferences?Part 1

Part 1 of a 2 part series. (Part 2 will cover
external hiring preferences, see below).

There is an ongoing debate among employment managers as to whether it is
better to give preference to internal candidates before looking externally
to fill vacancy. Older, more established firms traditionally give
preferences to internal candidates while fast-growing and more innovative
firms tend to focus more on external hires. Although most firms end up
using a mixed strategy, the target ratio of internal to external hires is
always a topic of hot debate. First let us focus on giving preferences to
current employees.

Give inside candidates a preference!

Reasons to favor inside hiring:

The performance level of an internal hire is generally better than
external hires in firms that are successful and stable.

Jobs can be filled faster because internal candidates generally
require less skill assessment, less time to make their decision and they
reject offers less often than external candidates.

The break-in period will be shorter because of their familiarity with
the firm and its terminology It can be cheaper due to a reduced need to
do expensive advertising and to orient an outside hire.

Internal candidates generally have no other external offers so
1) there is less likelihood of a bidding war and
2) they are less aware of market salaries so they're less likely to
demand a higher pay rate than what was offered.

There can be a more accurate assessment of internal candidates
because they are "known" due to inside the firm references and
performance assessment records.

Because internal promotions know the culture already there will be
less of a chance of a failure due to a poor "company fit."

An internal placement could result in multiple inside promotions.

As a result of so many people moving up to fill each vacancy, each of
these vacancies can act as a motivator for each of those that are
promoted.

Promoting from within allows us to do almost all of our external
hiring at the "entry level".

Entry-level jobs are cheaper to fill, have a larger candidate pool
and it gives us more time to train and assess those that aspire to reach
higher level positions. Also if we make a "bad" hire the
dollar consequences are lower for entry level hires

Providing inside hiring preferences bolsters the firm's image of
offering long time employment security. The image may also increase
retention and help attract those wanting security.

Internal hiring reinforces the culture and sends a message that
loyalty and performance will be rewarded with a promotion In periods of
high employment there may be few external candidates to consider, so
internal hiring is the only available choice

Problems with inside hiring:

Paper based internal placement programs are so slow that they
frustrate the internal candidate. The printing and distribution costs of
internal job opening lists can be high.

If no suitable internal candidate is found, the traditional "give
the internal candidates the exclusive first shot at openings"
policy may delay the overall hiring process.

For internal placement to be effective for the internal "passive"
job seeker job postings may need to be "pushed" to the
best candidates. "Intra-placement" programs where recruiters
actively seek out internal talent might also be required to help prod
the right candidates into the right positions. Most internal job posting
systems are so "fossilized" that the best internal talent may
not be identified. Internal "passives" (employees that won't
volunteer for openings) are generally not motivated to apply for
internal openings that require "self nomination".

"Wired" jobs (where the manager already has a candidate in
mind) may frustrate internal posters because not all posting are "real
openings". Outdated job postings may have the same impact.

Jobs posted on physical bulletin boards may be outdated and potential
candidates might be afraid to even look at the postings for fear of
being branded as disloyal. Bosses may consider employees that actually
post for jobs "disloyal" and as a result they may punish or
hold back their employees that post for jobs.

Managers may need to "hold on" to the soon to be
promoted individual in order to complete their current work. This
can delay the filling of new positions for many weeks or even months.

Internal hires generally do not have updated resumes or polished
interview skills which can make them appear less qualified than the more
polished external candidate.

Firms that allow managers to veto a move can frustrate internal
candidates.

Many firms have rules that require a certain tenure in a job before a
candidate can post for a new one. This can frustrate ambitious, talent
individuals that feel they are ready to move before the artificially
imposed deadline.

For firms with multiple sites or those opening new sites, relocation
costs may make job transfers between distant sites more expensive than
external "local" hires.

Many internal placement systems are based on seniority, which may not
result in the highest quality hire in a fast changing industry.

Because internal promotions can cause a "ripple" of
promotions all at once (because as multiple openings occur when one
person is promoted and the one below them moves up and then the one
below them moves up also etc.). This can disrupt firm performance due to
the fact that so many people have to learn "new jobs" in a
relatively short period of time.

Allowing too much internal movement can "hide" bad
management because employees just transfer rather than confront the bad
manager.

Prior to the promotion, there may be jockeying for position and
political infighting which can distract the firm/ department.

Those "not promoted" can be frustrated and may sabotage the
one that was promoted out of previous established jealousies (this can
also happen with external hires but it is less prevalent).

Those that were promoted may feel the need to "eliminate"
the runners up in order to solidify their position causing a net loss to
the firm (this can also happen with external hires but it is less
prevalent).

When contacts and experience in areas that are new to the firm are
required, internal hires just don't qualify.

So called "inbreeding" where the lack of diversity of ideas
and thinking occurs as because outside "blood" and contra
thinkers are not brought in to the firm at higher levels.

Unless there is a good development/ training program, internal
promotions may be slow to reach their expected productivity levels. The
cost of internal development programs may be higher than hiring "already
trained" external talent.

For small firms or firms that are rapidly growing there may not be
enough talent available internally to promote.

Promoting the most experienced or skilled person does not always mean
the candidate will succeed. The skills required to be a great player are
different than for being a great coach. Many firms are more reluctant to
fire (or reduce them back a grade) an internal promotion than they are
for an external hire.

In an expanding industry (like e-commerce) it is unlikely that any
current employee would have the talent or experience you need.

There is a tendency for managers to hire "people they know",
which can frustrate any isolated or less connected workers.

Few internal placement systems have any metrics or measures to assess
their effectiveness. Most have no customer satisfaction measures
included in their design.

Most internal placement programs are so antiquated and full of rules
that they are ineffective

There is an ongoing debate among employment managers as to whether it is
better to give preference to internal candidates before looking externally
to fill vacancy. Older, more established firms traditionally give
preferences to internal candidates while fast-growing and more innovative
firms tend to focus more on external hires. Although most firms end up
using a mixed strategy, the target ratio of internal to external hires is
always a topic of hot debate. First let us focus on giving preferences to
outside hires.

Give outside candidates a preference!

Reasons to favor outside hiring:

It helps you acquire competitive
intelligence about other firms.

New hires can help you identify other
potential candidates to "poach" from their firm.

The new ideas that applicants and new hires
bring in stimulate the thinking of others.

New hires ask "why we do things that way"
so we are often forced to re-think
the way we do things.

It keeps our employees on the edge because they know they must
compete against outsiders for jobs.

Outside hires don't have political alliances already set up. This can
help them implement new ideas without the "baggage" of past
political battles.

Already trained external hires may give us "instant talent"
for new products, programs, and skills.

Some argue that hiring "already trained" people is cheaper
than developing and promoting internal talent. This effect varies
depending on the cost of a new hire.

It allows other firms to train and weed out the "turkeys"
so we can hire the cream of the crop. As a result it can lower training
cost.

In a stagnant culture, "outsiders" might help "shake
things up" and help us evolve our culture.

When you hire a great talent from a close competitor, you gain one
and as an added benefit...the competitor also loses one.

The outside recruiting and advertising for outside hires may
tangentially help build your brand, send a message that you are growing
and also help boost sales.

Re-hiring boomerangs (former employees) may aid in retention efforts
as they tell other employees that the "grass is not greener"
on the outside.

In a fast-growing company (or small firms) you might have no choice
but the higher externally because there isn't enough talent to go around
inside the firm.

If the firm has weak training or development, the inside talent will
not have sufficient skill to do the job.

If the firm has a weak hiring process promoting internally, is not a
realistic option because of the lack of talent.

In jobs where you absolutely require experience, there may not be
enough experience in newly developing areas.

External hiring forces are managers to stay up with trends and to
benchmark as they interview search. This is the added impact of
improving their learning.

In most cases external hiring adds more to the diversity of the
workforce than internal hiring.

If the firm is going global, it will undoubtedly line that external "local"
hires are superior and performance to internal promotions.

The World Wide Web makes recruiting so easy and inexpensive the
advantage has shifted towards external hiring.

Problems with outside hiring:

Outside hires can weaken the corporate culture by bringing in counter
culture people.

The turnover rate for external hires is almost always higher than
internal promotions because the candidates must both adjust to a new
environment and they come to us as relative unknowns.

External hires often have a longer "adjustment period"
and orientation costs are higher.

Customers may feel slighted if they don't get
one of the Firm's current employees.

In a tight job the (potentially) higher starting salaries of outside
hires may cause internal equity issues and eventually increase all
salaries.

In a tight job market there may be little external
talent available or the quality of the
limited talent may be poor.

Firms with strategic alliances may anger their partners by "poaching"
their talent.

Hiring talent away from customers and suppliers may harm your
business relationships.